How does offsetting options work?
Suppose I bought a call option and the stock rises above the strike price. That is, I now have an ITM call option. Also, I don't have enough money to exercise the option. So to make a profit off of the call option without having to exercise it, I go to the market and sell a call option for the same strike price and expiration date. My question is since I now have two different "trades" sitting in my account: one is the long call and second is the short call, do I have to "link" these two trades together somehow or how does it work? For example, a person who bought my short call option exercises it, which means I will have to procure 100 shares to give it to him. But I have a long call option and no money to buy the 100 shares to give it to him. What happens now? Do I necessarily need to exercise my long call and give it to the short call or does the commission "cancel" these two orders without me having to do anything?
Also, what happens if I cannot find an exact same short call (with same strike price and expiration date on the market)? Since I cannot offset the trade, will I be in loss?
(1)1 Comments
Sorted by latest first Latest Oldest Best
If you own a security and you sell that same security, your broker (not "the commission") nets out the trades and you end up flat (no position). You don't have to do a thing.
In this case, when you buy to open a call, you own a long call. If instead, your sold a call as an opening position, you would be short the call. When you reverse the position, it's gone.
The terminology is:
BTO = Buy to open
BTC = Buy to close
STO = Sell to open
STC = Sell to close
BTO + STC = no position
STO + BTC = no position
You will almost always be able to find the exact same contract to sell in order to offset. The one exception is a worthless contract where no one is willing to pay even one penny to a seller. There is a way to get around this but that's another story.
Terms of Use Privacy policy Contact About Cancellation policy © freshhoot.com2026 All Rights reserved.